What These Laggards Say About the Dow's Record Close
The Dow Jones Industrials closed at another record high today, climbing 52 points in a broad-based advance that saw new all-time highs from the S&P 500 as well. In the latest in the ongoing push-and-pull among various members of the Federal Reserve's Federal Open Market Committee, today's comments swung the pendulum back toward the camp that favors continued accommodative monetary policy that includes further bond purchases. That had the predictable Pavlovian reaction from investors, helping the market recover from early losses even with New York Fed President William Dudley's reminder that the next move from the Fed could result in more bond purchases, indicating continuing concerns about the overall health of the U.S. economy.
In the context of a longer-term market rally, it's important to take daily movements on stocks with a grain of salt. For instance, as I pointed out earlier, Travelers dropped more than 2% today as the company faces the financial fallout of a deadly tornado in Oklahoma. Yet while drops like these almost always happen after catastrophic events, claim payouts are a natural part of Travelers' business. Moreover, the more important long-term drivers of Travelers' future growth are likely to come from the fate of the bond market, and so Travelers investors should keep a close eye on the Fed to see if further interest-rate rises for bonds lead to improved investment returns for the insurance company's portfolio.
Similarly, telecoms AT&T and Verizon both gave up ground today yet still show plenty of long-term promise. AT&T fell 0.75% as the company announced that it would allow some of its unlimited-data users to enable the FaceTime video-chat feature on iPhones, after initial resistance. In the long run, though, encouraging greater data usage will pay off in higher subscriber fees, even if the company takes a short-term hit. With Verizon, which dropped more than 1%, an overemphasis of the idea that the company has to take full control of its Verizon Wireless joint venture distracts from the huge potential that Verizon has for future growth. Even a 55% stake gives Verizon plenty of exposure to the still-expanding mobile market, and further refinements down the road could leave Verizon in a stronger position because of the shared burden through the joint venture.
Most importantly, even after today's drops, all three of these stocks are still trading fairly close to their 52-week highs, with Travelers backing off from all-time records recently. As a result, to give these stocks too much credit in holding back the Dow is to have too much of a tunnel-vision approach on a single day's trading.
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The article What These Laggards Say About the Dow's Record Close originally appeared on Fool.com.
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